Monday, March 05, 2018
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To prove that he's the world's most powerful user of social networks on the Internet, by a single tweet, Donald Trump managed to erase two percent from the value of the global equities. We learned that he was ready to impose tariffs or taxes on steel imports.

China responded in the most mature, pro-trade way among the economic powerhouses – well, maybe it's not quite a paradoxical exception. China will revenge if something like that happens but it "doesn't want a trade war". Theresa May has also tried to persuade Trump to reconsider.

Well, the European apparatchiks speak a bit different language. They're enthusiastic and eager to join the post-Olympic trade war games. Europe will impose tariffs on jeans, bourbon, and Harley-Davidsons imported from the U.S. Nice. But Donald Trump really loves such pissing contests. So he tweeted that if bourbons are restricted, America won't allow European cars to be imported which is fair because U.S. cars can't really be sold in Europe at all (which is rubbish but OK).

And so on and on. Quite a slippery slope.

It's a bad development. Just some year or two ago, people believed that there would be a full-blown Atlantic free trade zone. Now, we're not quite certain whether there will be any trade at all.

Trump may imagine himself as a general of a gloriously victorious army in the global trade war. But it's really silly because trade is more or less a symmetric enterprise and when it's restricted, both sides suffer. In some counting, they lose exactly as much.

I understand the dissatisfaction of Donald Trump's – his desire to stop the apparent unfairness of the trade restrictions across the world which manifests itself as the annual $800 billion trade deficit of the U.S. ($150 billion out of it is the trade deficit with the EU countries). And he has the determination, power, and desire to fix these imbalances – it may be done.

But you know, The Donald, I sincerely hope that you're reading this blog post. This injustice is just apparent. Why is it apparent? Because with a different counting of the trade, the U.S. trade is balanced. What is the different counting?

The different counting is that the U.S. dollar banknotes and the U.S. treasuries – or at least a fraction of them – should be considered a "popular U.S. product" that is being bought by others. When Unamericans are increasing their financial reserves by buying new U.S. dollars or the U.S. bonds, they are basically buying another U.S. product – pictures of Benjamin Franklin and similar great guys.

America is able to print these pictures and it's very good at this activity – as good as Germans are at producing the Daimler cars. And foreigners want to have an increasing number of these products in their basements. That's why America is capable of sustaining the $800 billion annual deficit, often without a significant devaluation of the U.S. dollar. It's sustainable because the easily printed banknotes and treasuries are basically products that are flowing in the opposite direction, from America to Europe and China and elsewhere.

This guy is one of the three Americans (or people who often live there) who have driven a modern Škoda (the Czech subsidiary of the Volkswagen Group, 2nd in profitability after Porsche) – which exports to the whole world except for North America. The other two Americans who have driven a Škoda are the Handsome Dancer duo from New York who have recorded the hilarious Škoda Coincidance ad for Škoda Taiwan. It's indeed possible to ban the import of car brands to the U.S. But what would the Americans gain is Mercedes or BMW became as esoteric in America as Škoda already is?

Trump is mainly a president of those Americans who work hard and produce something really tangible – like coal or steel. But you know, Mr Trump, there are lots of Americans – and to some extent, all Americans belong to this group – who live a happy live by selling the pictures of Benjamin Franklin they just printed.

Most other nations would be grateful if they were able to live prosperous lives just by printing and selling pictures of Benjamin Franklin (or some Swiss guys because the Swiss enjoy a similar status as Americans). Mr Trump, try to go to Kenya or another šithole and ask them whether they're willing to print U.S. dollar banknotes and "sell" these banknotes for lots of Western products. They would love to accept this occupation! They can't do it with the pictures of their leaders because such pictures are almost worthless and they would quickly become even more worthless if they tried to print much more. Even Americans, when they think a bit rationally, are grateful for that fate. It's a much more convenient job to print a few pictures of some great Americans with numbers on the pictures than to mine tons of coal and similar difficult stuff.

If that setup is sustainable, and it seems sustainable at least for many additional years or decades, it's a pretty good one for America and you could easily find out that the new world you're trying to get – with a protectionist America that no longer runs trade deficits – could very well turn out to be a great disappointment. American workers would have to work more than today.

And I would like to offer a different argument: the trade deficit can't really disappear without a big deterioration of the prestige of the U.S. currency, the U.S. treasuries, and the U.S. in general. Why? As I mentioned from a slightly different perspective, one way to look at the $800 billion trade deficit is to think about the products that are going from America, but especially coming into America, and this imbalance makes Americans less employed and other things.

But another way to understand or estimate the deficit is to count how many extra U.S. dollars and bonds the foreigners are willing to add to their reserves every year. This number – which may be said to be completely unrelated to the truly tangible products made in the U.S. as well as outside the U.S. – is enough to quantify the annual U.S. trade deficit. The annual trade deficit is also equal to the amount of U.S. cash and bonds that is just being added to the foreign reserves.

So if that number – the U.S. annual trade deficit – decreases, it unavoidably means that the Unamericans are less willing to collect U.S. dollars and bonds and I think that this basically implies that the prestige of America in the world will have dropped. Do you get my reasoning? And do you really want it, Mr Trump?

You know, if you view the increase of the U.S. exports and the decrease of the imports into the U.S. as an exercise for your muscles that you have to perform manually, you're missing something. The hypothetically decreasing U.S. deficits will have some additional consequences. In particular, if the U.S. were converging towards a balanced trade balance, and assuming "all other things equal", the U.S. dollar would strengthen and the trade deficit would ultimately reappear, anyway (not necessarily as big as before, but it would reappear), because the trade deficit is a reflection of the foreigners' desire to pile U.S. cash and bonds.

Because the unemployment in the U.S. is rather low, you may really find out that the status quo is an excellent one and any change that you're planning will actually make Americans less prosperous and it will make America less prestigious, too. So I kindly recommend you to stop the plans for an accelerating trade war. Stop trying to compete with the drunk likes of Mr Juncker who is capable of imposing tougher, more socialism-like regulations. At the end, I guess that the European Union is better in these freedom-crippling activities than you are – because our beloved European Union is one giant socialist šithole.

Another reason you don't really want to slide on that slippery slope is that the U.S. stocks would suffer – we saw a demo of that on Friday. And remember how important a source of pride and prestige the growing stock market under your watch has been. That could stop or be completely reversed. Do you want it? Maybe, policies trying to maximize the growth rate of the stock market are the best policies for the U.S. economy and for your prestige as the economist-in-chief, too.